Porter and Gereffi supply
compare and contrast element requires and approach to Porter and Gereffi
supply side linear, chain, input/output concept of production framed as activities
in a business unit in a global chain where money moves back as the input moves
forward and where groups of firms use common technologies to make products
which complete in the final product market.?
Introduction
The industry or sector value chain was introduced by Porter (1995) and in the year 1996 it
was adopted by Gereffi .The sector matrix was established by Froud, Haslam, Johal & Williams
(1998) as a production process while the production steps taken to primarily develop the product
serve as the primary activities and the company strategies are support activities. The increasing
complexity of doing business within global corporations, better, new and more innovative
procedures of analysis are required. The Sector matrix approach practically de-emphasizes the
production organization instead analyses individually demand and supply web relations. (Froud
et al, 1998) The major issue in value chain implementation is its effectiveness in particular firms
and exactly how measures to the sector matrix in complex corporation.
Sector Matrix is essentially about linking the local producers and service providers from
the developing world to the international markets. They provide a link to the producers of raw
materials and the eventual consumer. For instance, Generating an order will basically land a firm
at the bottom of the industrial chain while developing a branded range of a reputable product
advances the prospects of the producers to climb and advance the value chain ladder or progress
in the economic value chain.
Sector Matrix 2
Sector Matrix in the developing world involves cost reduction, Globalization and expansion of
international markets as well as encouraging and facilitating the fast growing middle and high
income class and offering opportunities to the developing and other semi-developed countries
producers to enter and operate in emerging markets i.e. regional, national or international
markets.
Commodity and global value chain have contributed to the increase in international trade which
has resulted in complex operations and the new emergence of modern evaluation techniques.
Many multinational companies have adopted the sector matrix and other forms of modern
management information networking. (Meine and Trienekens, 2012)
The factors can be elaborated by sector matrix that evaluates all the complex evaluations and
which are more accurate. The producers in developing countries work hard to strengthen and to
maintain a bargaining position in these regions, by collaborating horizontally among the
producers and setting up alliances in regional or other sector wide coordination networks or
developing regional clusters which in most cases are supported by the government which offer
new opportunities for many actors or players and the improvements of all competitive positions
of a country or state.
The upstream part of the food production in the global value chain, is actually not suited for
individual product differentiation as most food value chains heterogeneity for raw materials in
the upper part of the value chain are not really meant to be exploited for serving the market
heterogeneity in the lower part of the value chain i.e. downstream. Raw materials are initially
made homogeneous and later differentiated in the processing and distribution process stage for
instance through packaging. (Grunert, 2006) In most cases, the international value chains in the
Sector Matrix 3
upstream part are generally located in countries that are developing. These explains why only the
little or insignificant value added production in these global chains takes place in developing
countries. Michael Porter has emphasized the value and importance of clustering in relation to
the sector matrix. (Porter, 1998 and Porter & Wayland, 1995) Regional science has led to the
understanding and appreciation of constellation of local factors that basically sustain
competitiveness in leading firms and the supplier networks. Regions have turned into nexus of
innovation and learning. The major importance of utilizing clusters is that it facilitates labor
intensive exports in countries that are developing and also among the new low cost
manufacturers or producers entering the international market which also intensifies the
competition in that market. However most products from the country clusters that are from
developing countries are precisely similar to the ones produced internationally but show signs of
concentration of global trade which mostly retails between transnational companies.
From Production to Evolution
Core Competence Business Open Business Model
High cost demand Outsourcing Production Outsourcing innovation
Low Cost Supply Productive
Capacity
Innovative
Capacity
Source: (Simard and West, 2006)
Sector Matrix 4
Gereffi applies the term organizational succession to the process where the small manufacturer
by commences his trade by targeting the low end of the market and generally moves up the
ladder to more sophisticated global market. The governance and upgrading of value chains in
inter-firm or Sectoral analysis or matrixes have been approached differently by different authors.
Porter (1990: 43-4) applies company strategies by use of value chains in describing the
relationships between the firms and other sectors in the region. Froud’s et al (2000) uses the term
industrial complex to refer to the suppliers, dealers, workers, financiers and the government that
facilitates the trading activities in a particular region. Gereffi’s common global commodity chain
may mislead as the word commodity has lately evolve to mean large volumes of standardized
products. The analysis of the global commodity chain is relevant when trading in differentiated
products. The use of the words global value chain emphasizes the additional value that the
product acquired along the chain. Gereffi’s buyer driven commodity chain means the large
retailers, branded manufacturers and marketers who play major pivotal roles.
Sector matrix increases the specialization in free and fair trade especially in the organic products
from the developing countries, while the regional and traditional commodity chains like coffee
portray a lot of differentiation tendencies. For example, the amount payable to a producer for a
kilogram of coffee represents only four percent (4%) of the cost of a cup of cappuccino in the
western coffee shops like Starbucks. (Fitter and Kaplinsky, 2001) The balance of the payments
represents the ambiance and the value of the brand. These types of specialty products have made
it a conditional strategy to brand and add value to their products to attract and gain market share
in their particular sectors. (Gereffi, 1999)
Focused factories and sector distribution networks that have centralized distribution dedicate in
some cases factories that are particularly meant to produce mass products rather than have the
Sector Matrix 5
centralized factory produce a full range of specified products. The results may be reduced costs
but flexibility that is desired for effective growth may be lost as economies of scale will not be
exploited to its optimum level also its inability to counter the private label penetration strategy
which has been organized and initiated by many supermarket chains in the developed countries.
Tesco’s private brand label of the Chilean wine known as Tesco Finest covers more than half of
its entire wine sales in its shops leaving only 50% to be shared with the rest of the world in the
wine market. (Gwayne, 2008)
Global value chains are the vehicles by which the introduction of new or alternative
forms of production, advanced technologies, logistics, modern labor processes and
organizational relations and related networks are introduced. The car industry is an example
where the production process is advanced and the distribution networks are global and the
developing countries suppliers also participate in the research and the development of the
products in the sophisticated process. (Wilson and Abiola, 2003)
The global value chain has the advantage in technological abilities in mixing the different kinds
of biofuel with the ordinary conventional fuel. (Humphrey, 2003) The host country gains in the
area of advanced technology which it gains by interacting with the value chains. The value chain
is concerned with a wide range of prices from crude oil extraction to the additional cost of
generating extra kilowatt of electricity by windmills. (Gerefi and Korzeniewicz, 1994) It also
affects the cross elasticity and determines the substitution effect which creates a good impression
and importance of the effects of the fluctuations. For instance, in the year 2008, the prices of
crude oil rose to $148 per barrel, and the production of biofuel was profitable hence the biofuel
sector flourished and attracted more investment in the sector. A few months later, the prices
dropped to $40 per barrel and companies started to shelve there expansion into the sector while
Sector Matrix 6
those that were already in the market scaled down their operations substantially. Royal Dutch
Shell for instance reduced their operations in some developing countries. (Warhurst, 2005)
There is a glowing disparity among the global economic integration processes and the extent and
nature in which people and countries actually benefit from globalization. The main explanation
for this disparity is rooted in the inappropriate insertion of companies, regions and countries in
their respective value chains. (Kaplinsky and Morris, 2002) This is a situation where a producer
specializes in certain specific links in the value chain that are exposed to intense competition
which may record less trading activities and reduced financial income.(Gereffi et al, 2003) When
producers substantially fail to insert or adhere themselves in the right way or in an appropriate
manner into the global market, it may lead to a path of self destruction in which they proceed and
enter a path of immiserizing growth which locks them into an even bigger competition reducing
their incomes even further. Immiserizing growth is a situation where increased economic growth
is matched by reduced economic returns. Meaning that there is more output or production and
more employment but falling trend in economic returns. (Kaplinsky and Morris, 2002) Tropical
commodities and farm products such as coffee or cotton provide a good example of inappropriate
insertion. (Singer, 2003)
The global value chain explains the nature and the determinants of the general
competitiveness, and it expressively shows that the natural determinants of the income
distribution are actually dynamic. It implies that the competitiveness at some point in time may
not be sufficient to sustain economic growth. Sector Matrix allows a systematic focus and
specific analysis that is better suited for the dynamic nature of the value creation that stretches
beyond the real focus on a single company or a specific sector in a given economy. It provides a
link that identifies all the other value chain links and their activities and analyzing which ones
Sector Matrix 7
are subject to the increasing or the decreasing returns. With these clear distinctions,
policymakers can ultimately decide which actions to implement in order to facilitate the links
upgrading in the value chain in order to generate good returns. OECD, 2009) (UNCTAD, 2004)
Global software companies are among the leading and fastest growing in the current world and
mostly dynamic in product development and process innovation. They provide the drive and
impetus for the growth of other related sectors. (UNCTAD, 2001), (Ruiz, 2006), (Gereffi and
Memedovic, 2003)
South Africa has been the largest car producer for the Toyota brand of vehicles in Africa
and it enjoys preferential treatment and access to their local customers although it has very high
import tariffs. After the liberalization of the South African economy in 1994, the government
adopted an open policy to encourage exports. TSA (Toyota South Africa) has explored and
exploited opportunities to join the Toyota Manufacturing Corporations major global sourcing
company. TSA manufactures Hilux and Corrolla brands of Toyota vehicles. A major aspect of
the initial restructuring process included increasing all the local value added. The TSA plant has
moved from the production of seven different types of models at low prices and volumes to
manufacturing only two models at very high volumes, and secured a larger value added due to
the orders for the two specialized brands. (Robbins, 2006), (OECD, 2007b) The analysis carried
out on its production processes and sector matrix on its value chain concluded that having a few
cost effective brands would be more profitable than maintaining a pool of brands that were
unprofitable.
Global value chain approach targets both the general supply and the demand side that adds the
various links in the whole business system. A clear understanding of the links in the system in
Sector Matrix 8
terms of the strongest and the weakest may result in an approach that’s effective in increasing the
economic development in the global value chain markets. The policies designed to promote the
economic growth of the global value chains and the market for its products determines its
profitability.
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